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Fractional ownership is a phenomenon that is flourishing. While traditional luxury business product markets sink, and numerous business sectors batten down the hatches, its a market that continues to thrive apparently undaunted by the wider western economic downturn.

If anything, the market is actually growing... But what is fractional ownership? And how, in the midst of the credit crunch, is it consistently out-performing its more traditional rivals?

Before we bring things up to date, let us look back at the history of the sector. Although there are many tales about the true pioneers of fractional ownership, it is widely agreed that the fractional property market began to form in America in the early 1990s, with groups of friends coming together to purchase holiday properties.

By its very nature, a holiday property is something one uses only occasionally, so rather than leave their property unoccupied for much of the year, a group could purchase one between them and split usage and costs.

Flamingo Panorama

From these small acorns grew the mighty oak that we now call fractional ownership, a concept now so widely understood in the US that a recent study by PriceWaterhouseCoopers found that one-sixth of affluent households would consider investing in fractionals in the near future.

David Disick, President, David M. Disick & Associates, was one of the original fractional innovators. "When I inaugurated the Private Residence Club (PRC) industry in the mid 90s with The Franz Klammer Lodge in Telluride, United States of America, little did I realize how fast the PRC segment would grow, he said. Today, there are $2 billion in annual sales; the industry has performed well notwithstanding the current general real estate economic climate and projections for expansion are extraordinary. But despite being widely understood in their country of origin, fractionals have only recently entered into the wider consumer consciousness in Europe."

Over the past few years fractional ownership was a steadily growing marketplace, being utilised by savvy European consumers. But the recent financial turbulence has thrust fractional into the limelight as a viable way to maintain or enhance your luxury lifestyle at a fraction of the cost of old-fashioned single ownership.

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For those who would have previously opted for the time-honoured full ownership of such luxury items as yachts, holiday properties and supercars, fractional allows them to instead enjoy the same indulgences at a cost proportional to their time spent enjoying such luxuries.

Like the original pioneers in the USA, they are managing their conspicuous consumption to their financial benefit without sacrificing any of the experiences to which they may have grown accustomed. The lifestyles of these fractional-lifers can often be improved whilst their bank balance continues to tell the tale of someone who is managing their spending responsibly.

An even more interesting development is the growth of the middle-class millionaire- a person who can truly live their ideal lifestyle complete with beautiful holiday residences, supercars and other such trimmings on an income that, although well in the upper echelons compared to the average earner, is not that of someone who could splash out on such things without serious sacrifices being made elsewhere.

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According to author Lewis Schiff, whose book of the same name identified the Middle Class Millionaire phenomena: As material goods become more commoditised, high-end experiences become the final frontier of true luxury. They address our need for quality in a time-starved world. Fractional products bridge the gap between products and services, the sweet spot for those who desire the experience of wealth without the hassle of obligation that comes with it. Discovery is an experience that the middle-class millionaire craves.

So far, so enticing: but what exactly is fractional? To cover basic fractional ownership first, this is the concept of dividing an expensive asset into percentage shares and selling those shares to individual owners. Each person who owns a fractional share then gets a relative percentage use of the asset, with a management company handling the asset and fractional owners paying fixed fees for this management, sometimes in addition to variable fees for usage. Fractional owners can benefit from capital appreciation, although, on the flip side, they may suffer from depreciation.

For markets that do not traditionally lend themselves to fractional ownership, such as those involving rapidly depreciating assets (motor vehicles for example), the asset sharing model is utilised. Asset-sharing is different in that there are no ownership links between members and assets, so there is no investment potential in this model, but it broadly comes under the Fractional umbrella. Asset-sharing generally involves a membership fee and, sometimes, a further usage fee, allowing the member access to the use of the assets, for example a fleet of supercars.

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Fractional lifers, as trend-watching gurus have termed those who use fractional ownership, desire designer accessories, exotic cars, membership of the best golf courses and access to the finest holiday homes, as well as the ber-luxury goods previously only available to the ultra-rich, including yachts, private aviation and dabbling in pastimes such as racehorse ownership. But they wish to dip into and out of these experiences rather than commit themselves to full ownership. According to Piers Brown, founder of Fractional Life: Consumers realize that life is finite and thus they want to make the most of their lifestyle in the here and now. Such people now have a different attitude to luxury, valuing the thrill of the experience over the satisfaction of ownership.

Although broader acceptance of fractional ownership is only just filtering into the daily lives of many consumers, fractional ownership is, as the terms suggests, a way of life.

Breakfast with a majestic Pacific ocean view

Our thanks to Piers Brown, the founder of FractionalLife.com and the Editor George Sell for their permission to republish this article.

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